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Facts
The assessee, a non-resident individual, did not file an income return for Assessment Year 2014-15. Her case was reopened because she prematurely surrendered a pension policy/Unit Linked Insurance Plan (ULIP) from Bajaj Alliance, receiving Rs. 81,44,067/-. The Ld. AO treated the accretion value of Rs. 21,44,067/- as escaped income, which the assessee claimed was exempt under Section 10(10D) before the Dispute Resolution Panel (DRP).
Held
The Tribunal determined that the assessee's policy did not qualify for exemption under Section 10(10D) as it lacked life insurance cover. However, it allowed the alternative contention that the income of Rs. 21,44,067/- could not be taxed in Assessment Year 2014-15 because the surrender amount was received in the subsequent financial year (04/04/2014), which pertains to Assessment Year 2015-16. Consequently, the Ld. AO was directed to delete the addition for AY 2014-15, and the additional legal ground regarding the validity of the assessment order was not adjudicated.
Key Issues
(1) Whether the premature surrender proceeds of a Unit Linked Insurance Plan (ULIP) are exempt under Section 10(10D) of the Income Tax Act. (2) The correct assessment year for taxing the surrender value of an insurance policy/ULIP when the payment is received in a subsequent financial year. (3) Validity of the reassessment order passed under Section 147.
Sections Cited
147, 148, 144C(13), 10(10D), 80CCC(2), 48, 112, 234A, 234B, 194DA, 80C, 80CCC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SHRI RENU JAUHRI
Per: Smt. Beena Pillai, J.M.: The Present appeal filed by the assessee arise out of order dated 24/01/2023 passed by Ld.ITO International Taxation Ward 2(3)(1), Mumbai for assessment year 2014-15.
2. The assessee is non resident individual and had not filed return of income for year under consideration. The case was reopened as assessee prematurely surrendered the pension policy of M/s. Bajaj Alliance Finance Company during the Financial Year relevant to assessment year under consideration for an amount of Rs. 81,44,067/-. The Ld.AO was therefore of the view that income chargeable to tax has escaped assessment as assessee did not offer the accretion value of the pension policy amounting to Rs. 21,44,067/-, to tax. 2.1 Assessee was issued show caused notice calling upon details of surrender of the policy in response to the notice, the assessee furnished reply dated 14/03/2022. The Ld.AO after considering the same rejected the explanation furnished by the assessee and made addition in the hands of the assessee amounting to Rs. 21,44,067/- 3. On receipt of the draft assessment order, the assessee preferred objection before the DRP. 3.1 Before the DRP, assessee submitted that, she is eligible to claim deduction u/s. 10(10D), in respect of settlement amount received from Bajaj Alliance. It was submitted that, the life insurance policies are entitled for deduction as the provision of section 10(10D) upon maturity of satisfaction upon the specified condition and thus it was submitted that the claim cannot be denied. 3.2 The DRP after considering the rival contention of the assessee observed and held as under:
7. Discussions & Directions of DRP: 7.1 We have carefully considered the rival contentions. The AO has taxed the excess of maturity proceeds over the amount invested of a Unit-linked Insurance plan. Actually, a lot of changes haver taken place in taxation laws with respect to the Life Insurance proceeds. From a completely free taxation regime, we have gradually been moving towards a taxation regime, of course, if the level of premium paid is more than the prescribed limit, in proportion to the sum assured. Initially, the annual premium was to be more than 20% of SA to make the proceeds taxable. Later on, this level was reduced to being more than 10%. So, actually, the proceeds are increasingly becoming taxable. This has happened particularly since the insurance products have started behaving like investment products rather than a plain and simple insurance. 7.2 Given this backdrop, the assessee should have been more than ready with all the documents and evidence to make a good claim for exemption. This is sadly lacking in this case. The assessee is a non- filer. She started collecting information after the receipt of notice of re- assessment from the IT department. It is also an admitted fact that she actually relied upon her Agent's word that the policies were tax-free. But, later on, she herself found out that actually, there were two policies and that, one of them was taxable and the other was not. That, TDS was also accordingly done. But, that, the policy in question now was a tax-free policy, she claims 7.3 But, the moot question remains as ever, as to how the policy was a non-taxable one! How does it get proved! Ideally. the assessee should have submitted a copy of the Policy documents, a statement from the Insurance companies on the nature of the policy issued, along with a chart showing the details of payment of premium year after year, the quantum of minimum sum assured the surrender value on maturity. surrender value on pre-mature encashment, TDS done if any and so on and so forth. No such exercise has been done. Therefore, there is a lack of enough facts and supporting documents to examine the issue beyond any reasonable doubt. 7.4 The assessee has submitted a legal write-up on Section 10(10D) and wherever there is a talk of exclusion or exception ( whereby the policy would get taxable), it is stated that the same facts are not present or applicable in her, case. This is hardly a defence. No supporting documents are given for such claim. At one place, even this is written that Unit-linked Insurance policies do not have any sum- A.Y. 2014-15 Ms. Bina Suresh Gidwani assured at all. But, this is a general statement. There are ULIPs where there are a minimum sum assured. In fact, how can there be an insurance policy without any reference to the sum assured! Then, it shall become a mutual fund or something like that. 7.5 It is noticed that the assessee has not given the issue the due importance which it deserved. The claim of an exemption is not simple and straight-forward It has to be proved with enough evidence. In fact, it would have been better had the assessee filed the ROI in due time and claimed the deduction or exemption at that time itself. The question of the Insurance company not co-operating etc in furnishing details etc would not have arisen and it would have stood the test of enquiry. That being not so, we are constrained to observe that the objections raised do not have any merits and deserve to be rejected. We direct accordingly.
3.3 On receipt of the DRP direction the Ld.AO passed impugned order by making addition in the hands of the assessee. Aggrieved by the final assessment order assessee is in appeal before this Tribunal.
The Ld. AR submitted that, the assessee raised main grounds of appeal claiming that she has received sum on maturity or otherwise which is exempt u/s. 10(10D) of the Act. He submitted that, vide application dated 28/09/2023 the assessee raised additional ground on issue of validity of assessment order dated 24/01/2023 u/s.147 r.w.s. 144C(13) of the Act is barred by limitation and thus void ab initio. He submitted that assessee intends to argue the issue on merits of the addition though the legal issue is raised challenging validity of the assessment order passed. Accordingly, based on the above submissions we first consider following revised grounds filed by the assessee:
“1. The Learned Dispute Resolution Panel and the Learned Assessing Officer erred in re-opening the assessment and determining the total A.Y. 2014-15 Ms. Bina Suresh Gidwani income of the appellant at Rs. 21,44,437/- without appreciating the fact that no income chargeable to tax has escaped assessment during the year under consideration.
2. The Learned Dispute Resolution Panel and Learned Assessing Officer erred in making an addition of Rs. 21,44,067/-under the head 'Income from Other Sources' without appreciating the fact that proceeds from redemption of Unit Linked Insurance Plan (ULIP) was received in FY 2014-15 relevant to AY 2015-16 and hence not taxable in AY 2014-15.
3. Without prejudice to Ground No. 2, the Learned Dispute Resolution Panel and Learned Assessing Officer erred in assessing the proceeds from redemption of ULIP under the head 'Income from Other Sources' instead of the head 'Capital Gains' and not granting benefit of indexation under Section 48 of the Act and beneficial rate of tax under Section 112 of the Act.
4. The Learned Dispute Resolution Panel and learned Assessing Officer has erred in levying interest of Rs. 5,89,536/- under Section 234A of the Act without appreciating the fact that return was filed within the due date specified in the notice u/s. 148 of the Act.
5. The Learned Dispute Resolution Panel and learned Assessing Officer erred in confirming the levy of interest under Section 234B of the Act of Rs. 7,02,144/-. It is submitted that the appellant is not liable to pay interest under Section 234B of the Act.
The appellant reserves the right to add to, alter or amend the Grounds of Appeal.”
5. The Ld.AR submitted that Ground No. 1 is general in nature and does not require adjudication.
6. Ground No.2 raised by the assessee is challenging the addition of Rs.21,44,067/- under the head income from other sources.
A.Y. 2014-15 Ms. Bina Suresh Gidwani 6.1 It is the submission of the Ld.AR that assessee had made investment in non participating unit linked plan issued by Bajaj Alliance life insurance company during the financial year 2009- 10 and had paid premium of Rs. 60,00,000/- over the period of 3years. 6.2 The Ld.AR submitted that, assessee received sum of Rs. 81,44,067/- as premature sum on surrender of the policy with M/s. Bajaj Alliance. He submitted that assessee received Rs.21,44,067/- over and above the investment she made under the policy which was claimed u/s. 10(10D) of the act as exempt. The Ld.AR relied on the policy document and statement of account issued by M/s. Bajaj Alliance placed at pages 4-36 of the paper book. 6.3 On the contrary, the Ld.DR relied on the report submitted by the Ld.AO dated 27/07/2023 as well as 17/07/2023 which is scanned and reproduced as under: “2. Facts of the Case: The status of the assessee was non-resident and not filed the return of income during A.Y. 2014-15. Accordingly, the case was reopened on the basis of information received from the ITO(I&CI), Unit-1(2), Mumbai as the assessee has prematurely surrendered the pension policy of M/s Bajaj Alliance Insurance Company in F.Y. 2013-14 for amount of Rs. 81,44,067/- accordingly as per section 80CCC(2) of the 1.T. Act, 1961 accretion value i.e. the differential amount of the surrendered value and the premium paid of Rs. 21,44,067/-(81,44,06760,00,000) should be added in the previous year in which the withdrawal has been made, accordingly the assessment was completed after addition of Rs. 21,44,067/- to the total income of the assessee u/s 147 of the Act.
4. In this regard, the assessee has filed the details of the policy and other documents which were not provided during the course of the scrutiny proceedings and also not provided during the course of DRP proceedings. In this regard, the assessee has filed the prayer to the Hon'ble ITAT for admission of the additional evidence.
Remark of the AO on additional evidence forwarded:
"On perusal of the additional evidence submitted by the assessee, it is seen on page no. 2 that this is a Unit Link Plan, on page no. 7 it is showing as pension fund and on perusal of the page no. 12, it is seen that this is a regular premium paying unit linked deferred annuity policy with the option with the policy holder to select either taking life cover or not taking life cover. Therefore, on perusal of the papers submitted by the assessee it is not clear that it is a unit link policy or life insurance policy.
Further, as per the information received, it was a pension plan. Therefore, the type of policy appears to be Unit Linked Plan from the details submitted by the assessee. Further, at this point this office is not in the position to verify the same from the insurer i.e. Bajaj Allianz Life Insurance Company Ltd as no proceedings are pending in this office. Therefore, you are requested to set aside the matter to the A.O. to enquire about the same from the insurer regarding the status of the policy issued to the assessee.
Further, as submitted before the Ld. DRP, the assessee has claimed exemption under section 10(10D) of the 1.T. Act, 1961. However, the impugned section caters to life insurance policy and not to a unit linked plan where life cover is an option. Moreover, the details of exercise of such option is not clear as perused from the submission of the assessee, neither details of sum assured are clear. In absence of such critical information, which would determine applicability of section 10(10D) of the Act, it is impossible to comment on the taxability of such surrendered pension policy.
A.Y. 2014-15 Ms. Bina Suresh Gidwani Without prejudice to the above, sufficient opportunity was given to the assessee during the course of assessment proceedings to file the details but the assessce has not furnished the same, also during the DRP proceedings the assessee has filed to file any such details. Therefore additional evidence may not be accepted at this juncture as sufficient opportunities have already been given."
Kindly refer to the above.
During the course of hearing, the Assessee filed additional evidences, which were not filed before the AO during the assessment proceedings or before the DRP. These evidences were forwarded to the AO for necessary verification and comments. The Assessing Officer submitted written reply on the subject matter, a copy of which is submitted for kind perusal of the Honorable Members.
On verification of the replies and other evidences submitted by the Assessee, it could not be conclusively ascertained as to whether the policy relied upon by the Assessee was Unit Linked Plan Policy or Normal Life Insurance Policy. The AO is of the view that the necessary further enquiries needs to be carried with the Insurance Company so as to ascertain correct nature and status of the policy relied upon by the Assessee for the purpose of clam under section 10(10D) of the Income Tax Act.
The issue involved in the present case needs factual verification of the facts. It is respectfully submitted that the proceedings may kindly be set aside and restored back to the files of the AO, for proper verification of the fresh / additional evidences filed during the present proceedings.”
6.4 The Ld.DR thus submitted that the policy in which assessee invested is a pension policy and not a life insurance policy. He also submitted that there is no assured amount allocated for life A.Y. 2014-15 Ms. Bina Suresh Gidwani insurance, primary requirement u/s. 10(10D) fails. He thus supported the orders passed by the authorities below. 6.5 In the rebuttal to Ld.DR’s arguments, the Ld.AR submitted that, alternatively the sum received is not taxable for the year under consideration as amount was received in the subsequent financial year being 2014-15. In support, the Ld.AR placed reliance on page 2 of the paper book and submitted that the application for surrender was made by the assessee on 27/03/2014 and the amount was issued to the assessee through cheque dated 04/04/2014. He relied on the response by Bajaj Alliance to the assessee regarding issuance of surrender value vide letter dated 08/04/2022 along with copy of the cheque issued placed at page 40-41 of the paper book. The Ld.AR thus submitted that, even if it is held to be taxable, the same cannot be taxed for the year under consideration as the amount was received by the assessee, in subsequent financial year, which is relevant to assessment year 2015-16. We have perused the submissions advance by both sides in the light of record placed before us.
On perusal of the policy at page 2-33, it is noted that assessee invested in Non Participated unit linked policy issued by Bajaj Alliance Life Insurance Company. On a detailed verification of the policy, we note that, the said policy does not provide life insurance cover and therefore, the sum invested by the assessee was Rs. 20lakhs per annum in 3 consecutive years. Subsequently, assessee surrendered the policy vide her letter dated 27/03/2014, in view of which, she received total sum of Rs. 81,44,067/- by way of cheque dated 4/04/2014. The bifurcation of the amount is placed on page 40 which scanned and reproduced here under: “Sub: Unit Link Surrender Policy Number: 0126351615/Receipt No: 0227095666/DOC: 27-MAR-14 Thank you for applying to Bajaj Allianz Life Insurance Company for a Life Insurance coverage. As per your request we have taken the Withdrawal/ Surrender action under the above policy
Balance Amount: 6000000 Deductions Amount Total 0 Net Amount Payable 8144067 We hereby enclose a Cheque for Rs. 8144067 In words Eighty One Lac Forty Four Thousand Sixty Seven Only Vide Cheque no./NEFT 111326 dated 04-APR-14 towards the refund.
Disclaimer: You have the option to receive the claims/maturity payments/other sum due to you from the Company through electronic mode. If you wish to receive the payment through electronic mode, kindly furnish your Bank Account details (Account No., Name & Address of the Bank and IFSC No.) along with a copy of cancelled cheque at the Office of the Company. Please ensure to keep your bank particulars updated in case of any subsequent change.
Disclaimer: In compliance of the provisions relating to deduction of tax at source under section 194 DA of Income Tax Act, 1961 as introduced by Finance Act, 2014, any payment (except payment exempted u/s 194DA) made by Bajaj Allianz Life Insurance Company Limited shall be subject to deduction of applicable TDS. In absence of PAN details, TDS would be deducted @ 20% instead of 1% in case where PAN is provided. TDS once deducted shall not be refunded. For further details, please consult your Income Tax advisor/consultant.
A.Y. 2014-15 Ms. Bina Suresh Gidwani For any clarifications or assistance, please feel free to contact us. Pledging our services in the best interest of the customer. Yours Faithfully, For Bajaj Allianz Life Insurance Company Limited.” 7.1 On perusal of section 10(10D), it is noted that, the deduction is available, only if it is a life insurance policy. For a non life insurance policy like the one in present case deduction under section 10(10D) of the Act cannot be allowed. Accordingly we do not find merit in the arguments of the assessee regarding allowbality of assessee’s claim as deduction u/s. 10(10D). 7.2 The Ld.AR alternatively submitted that the amount was received by her is in the next financial year for which the relevant assessment year would be 2015-16. He submitted that, the said sum cannot be taxed during the year under consideration as it is taxable on receipt basis. The Ld.AR submitted that, assessee is an individual who is not required to maintain any books of account and therefore accrual system cannot be applied. 7.3 We find force in the argument advance by the assessee. Accordingly, assessee was directed to furnished bank statement, that shows the amount deposited in subsequent financial year. The Ld.AR relied on the page 41 wherein the cheque issued by Bajaj Alliance is dated 11/04/2014 which was deposited into the account of the assessee on 19/04/2014. Further, we note that provisions of section 10 (10D) as well as similar provision u/s. 80C that deduction is considered on receipt basis. The provision of section 10 (10D) start with the phrase “any sum received”. Section 80CCC also emphasis on, “any sum received by the assessee”. In any event, upon surrender, the assessee would not know the amount that she is going to receive. The amount is A.Y. 2014-15 Ms. Bina Suresh Gidwani released by Bajaj Allianz upon scrutiny of conditions applicable. Therefore quantification is not possible unless the amount is received in actual. Accordingly we are in agreement with the alternate contention of the Ld.AR that, the sum of Rs. 21,44,067/- cannot be taxed in the year under consideration, as the same was received by the assessee in the subsequent financial year. We therefore, directed Ld.AO to delete the addition made for year under consideration. Accordingly, Ground No.1 by the assessee is allowed on the alternative plea. In the result the appeal filed by the assessee stands allowed on the alternative submission raised.
As we have already deleted the addition the legal issue raised by the assessee in the additional ground become academic and it is not adjudicated. In the result the appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 06/03/2025